EPFO cuts rate on employee provident fund to 7-year low of 8.5% for FY20

The EPFO had given an interest rate of 8.65% in the previous financial year to roughly 170 million subscribers

The Employees’ Provident Fund Organisation (EPFO) on Thursday decided to slash the interest rates on provident fund savings of formal sector workers to a seven-year low of 8.5 per cent for the year 2019-20.

The EPFO had given an interest rate of 8.65 per cent in the previous financial year to roughly 170 million subscribers.

The decision was mainly because of two reasons: EPFO getting a lower rate of return on its investments in government securities and the body’s view to keep higher surplus owing to economic uncertainties, two people who were part of the deliberations said.

The decision was taken at the EPFO’s central board of trustees (CBT) meeting chaired by Labour and Employment Minister Santosh Kumar Gangwar.

The interest rate will be notified by the labour ministry after getting approval from the finance ministry. The interest rate on EPF savings will be the lowest since 2011-12 when it stood at 8.25 per cent. In 2012-13, the EPFO had given a rate of return of 8.5 per cent.

 

“The trade unions are unhappy with the decision. The rate of return on government securities has been coming down and the EPFO had limited surplus to offer higher rate,” said EPFO’s CBT member A K Padmanabhan.

By agreeing to give an interest rate of 8.5 per cent, the EPFO will be left with a surplus of around Rs 700 crore, a CBT member said, requesting anonymity. The EPFO could have offered a higher interest rate of 8.55 per cent, keeping a surplus of around Rs 300 crore, but decided not to do so.

“The economic conditions are not conducive. The impact of coronavirus on the global and domestic economy is yet to be seen. Hence, the EPFO decided to keep a higher surplus thereby offering a lower rate of interest,” the official said. Increasing the interest to 8.6 per cent or at the present rate of 8.65 per cent was not an option as the EPFO would have left with a deficit in its funds. When the EPFO had notified an interest rate of 8.65 per cent — the first hike in three years — in 2018-19, it had kept a surplus of around Rs 150 crore.
 

The new rate of interest is higher than the return on investment in small saving schemes and that of provident fund schemes for government employees.